Big Blue becomes Big Red as Lenovo buys IBM unit

SHIFT OF FOCUS： Lenovo Group has acquired a majority stake in one of the biggest Chinese overseas acquisitions ever, creating the world's third largest computer maker

AP , BEIJING

Thu, Dec 09, 2004 - Page 1

Chinese computer maker Lenovo Group said yesterday it will take over International Business Machines Corp's (IBM) personal-computer business, creating the world's third largest PC maker in a US$1.75 billion deal that announces China's ambitions to become a key player in the global industry.

The deal -- one of the biggest foreign acquisitions ever by a Chinese company -- is expected to quadruple sales of Lenovo, already Asia's biggest computer maker, the companies said. At the same time, it shifts IMB to a peripheral role in a technology it pioneered.

Lenovo, formerly known as Legend, joins a wave of Chinese firms with aggressive plans to expand abroad.

"This acquisition will allow Chinese industry to make significant inroads on its path to globalization," Lenovo chairman Liu Chuanzhi (柳傳志) said at a news conference. "It has changed the structure of the global PC manufacturing business."

Lenovo will take over IBM's desktop PC business, including research, development and manufacturing for US$1.25 billion in cash and shares, while IBM retains a 18.9 percent stake, Liu said.

Lenovo also agreed to take on liabilities that raise the total value of the deal for IBM to US$1.75 billion.

The Chinese company will be allowed to use IBM's brand name under a licensing agreement, Liu said.

The companies appear to have structured the deal to ensure that IBM retains a say in the PC business, despite its small stake.

Lenovo Group's worldwide PC business will move its headquarters to New York.

Lenovo was founded in 1984 by academics at the government-backed Chinese Academy of Sciences and first worked out of a small cottage. First set up to distribute equipment made by IBM and other companies, by 1990 it was selling PCs under its own brand name.

IBM now focuses on consulting and software, outsourcing much of its manufacturing.

The sale to Lenovo is expected to cut production costs and breathe new life into the PC business, which now accounts for a small portion of IBM's total sales and profits.

"The IBM brand will gain great recognition in China, the world's fastest growing economy and the world's fastest growing market for PCs," said John Joyce, IBM senior vice president and group executive of IBM Global Services.

Beijing-based Lenovo has 27 percent of China's PC market.

Lenovo will need to branch out in services and other areas as profit margins for manufacturing shrink, said Duncan Clark, managing director of the consulting firm BDA China Ltd.

He suggested Lenovo call the new venture "Big Red" -- a play on IBM's Big Blue nickname and China's national flag.